1992 (3) TMI 105 - AT - Income Tax

Summary

Issues:
- Taxability of subsidy received by the appellant under a specific government scheme
- Exemption claims under sections 10(17B), 10(2), and 10(23BB) of the Income-tax Act
- Disallowance of shortage of silk yarn
- Whether subsidy received is taxable as revenue or capital receipt
- Alternative plea for taxing only the amount of losses and carrying forward the balance

Analysis:

The judgment involves appeals filed by the assessee against the CIT (Appeals) order for the assessment years 1979-80 and 1980-81. The main issue revolves around the taxability of the subsidy received under a government scheme and the rejection of exemption claims under various sections of the Income-tax Act. The appellant argued that the subsidy should not be taxable, citing various case laws and the benevolent nature of the subsidy. The Departmental Representative contended that subsidy was taxable, referencing relevant case laws supporting their stance.

The tribunal analyzed whether the subsidy received by the appellant should be considered a revenue or capital receipt. The tribunal noted that there was no direct case law directly applicable to the appellant's situation. The tribunal examined the purpose of the subsidy and the scheme under which it was received. It was established that the subsidy was compensation for loss of profit due to selling goods at a fixed rate, making it a revenue receipt. The tribunal referred to precedents where subsidies for compensating losses were deemed revenue in nature.

The tribunal rejected the alternative plea to tax only the amount of losses and carry forward the balance for subsequent years. It was emphasized that the treatment of the subsidy had to be consistent either as a capital or revenue receipt, and in this case, it was determined to be a revenue receipt. Therefore, the alternative plea was dismissed.

In conclusion, the tribunal upheld the taxability of the subsidy as a revenue receipt, denying the exemption claims and disallowing the alternative plea for partial taxation. The judgment provides a detailed analysis of the legal principles surrounding the taxation of subsidies and the distinction between revenue and capital receipts in such cases.